Google has warned that it will shut down its Google Reader news aggregator July 1. Many people (myself very much included) are mourning a beloved and useful product, but the company cited declining usage.

Under CEO Larry Page, Google has made a practice of “spring cleaning” throughout all the seasons so it can narrow its focus. Reader was just a another bullet point on the latest closure list.

But the shutdown wasn’t just a matter of company culture and bigger priorities, sources said. Google is also trying to better orient itself so that it stops getting into trouble with repeated missteps around compliance issues, particularly privacy.

That means every team needs to have people dedicated to dealing with these compliance and privacy issues — lawyers, policy experts, etc. Google didn’t even have a product manager or full-time engineer responsible for Reader when it was killed, so the company didn’t want to add in the additional infrastructure and staff, the sources said.

But at the same time, Google Reader was too deeply integrated into Google Apps to spin it off and sell it, like the company did last year with its SketchUp 3-D modeling software.

The context for this concern about compliance is Google’s repeated public failures on privacy due to lack of oversight and coordination. It’s pretty clear why Page is trying to run a tighter ship.

Regulators have had ample reasons to go after the company. Google recently paid $7 million to settle with U.S. attorneys general over its years-long international Street View Wi-Fi incident, while agreeing to more closely police its employees. And last summer the company paid $22.5 million for breaking the terms of its U.S. Federal Trade Commission agreement over informing users accurately about privacy practices when it used a trick to install ad cookies for users of Apple’s Web browser Safari.

In the Wi-Spy case, after repeatedly downplaying the incident, Google ultimately disclosed that an engineer had devised the drive-by plan to collect user data from unsecured Wi-Fi networks, and had easily passed it through rubber-stamp approval processes.

In the Safari bypass case, Google said it was just trying to check whether users were logged into Google+, and any resulting tracking was inadvertent and no personal information was collected. Ultimately, what the company was held accountable for was having an out-of-date help page — an even more basic slip-up.

While it might not be obvious how Google Reader could be compromised by similar lapses — perhaps policies could fall out of date, or user RSS subscription lists could be exposed — the point is that Google wasn’t willing to commit to ensuring that it was well-run.

So how many users would Google Reader need to make it a valuable enough product to be worthy of investment and a real team?

Google wouldn’t disclose how many users the product had, but Flipboard CEO Mike McCue told me yesterday that two million people have connected their Google Reader accounts to the Flipboard visual news apps. So you have to imagine it’s probably an order of magnitude larger than two million.

(By the way, many people involved with the product agree that it wasn’t just tech news fanatics who loved the service, but politics junkies and mommy bloggers and anyone who likes to mainline fresh content from their preferred outlets.)

In a conversation this weekend, Baum said, “My sense is, if it’s a consumer product at Google that’s not making money, unless it’s going to get to 100 million users it’s not worth doing.”

But Baum left the team in 2007 — before the rise of Twitter — and he notes Google never put the resources in to do things like help new Google Reader users find feeds to follow and parse the most interesting content from high-volume outlets.

The irony, Baum said, is that if Google Reader were out seeking venture funding in Silicon Valley with its high-value audience, it most likely would have gotten it. “As a startup they would have been perfectly viable,” he said. Not to mention, startups don’t have to worry about compliance issues.

“Someday someone will do something in this space that will work,” Baum said. “And maybe then Google will buy them.”

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